Your 2018 guide to getting solar panels for your home in California
This page is a complete guide to the complicated and sometimes confusing process of installing solar panels on your California home. Since there's a lot to consider, we've separated the page into sections to help you find what you are looking for. If you find this page useful, please share it with someone who might also find it interesting!
** What's new for 2018 **
California has been a busy state in the recent past. In mid-2018, the state's Energy Commission voted unanimously to require all new California homes to have solar installed when they're built, statring in 2020. The during the fall legislative session, Governor Jerry Brown signed SB 100 setting a goal of 100% carbon-free energy for the state by 2045. That's a big deal!
The there's Net Metering. With the exception of LADWP, every major California utiity has now hit their net metering cap. What that means for you is that if you go solar in California, you'll be signed up for "Net Energy Metering 2.0", aka NEM 2.0, a 20-year contract from your utility company that defines how much they'll pay you for your excess solar energy, and how much you'll have to pay every month to maintain a 2-way connection.
If you're an LADWP customer, you can still get straight-up net metering, which is full price for the electricity you feed back into the grid, with no additional monthly fees. LADWP also offers solar rebates to make going solar cheaper, so connect with a solar expert as soon as possible to claim your rebate before they go away!
We get more in-depth on what NEM 2.0 means in our section on net metering, below.
The Solar Strategy section is focused on the 3 ways of paying for solar in California, so you can decide which is best for you. We've created a tool that asks you a few questions and recommends whether you should pursue a solar lease, loan, or outright purchase. Then, we provide detailed analysis of how each works.
The Solar, Step by Step section is a guide to everything that happens from before you get solar quotes to the time when the panels are on your roof and you're getting ready to claim that sweet solar tax credit.
The Policy Information section contains all our latest research on the rules set by lawmakers in Sacramento and the Public Utilities Commission, which determine how easy it is to go solar in California. These policies and rules govern everything from renewable energy mandates to interconnection, and have a huge effect on the viability of solar.
Finally, the Solar Incentives section includes information about money-back rebates and grants, tax credits, and tax exemptions for going solar in California.
Click any of the boxes below to go to that section of the page, or scroll down to read the page in order.
|Your California Solar Strategy|
|California Solar, Step by Step|
|California Solar Policy Information|
|California Solar Incentives|
|Your California Solar Strategy|
|Your 3 Options for Going Solar|
|Paying Cash for Solar in California|
|Solar Loans in California|
|Solar PPAs in California|
|How to know if solar is right for you|
|California Solar, Step by Step|
|Getting & Comparing Quotes|
|Financing Your System|
|Signing a Contract, & What Comes After|
|Installation, Inspection, & Interconnection|
|Operation, Maintenance & Claiming the Tax Credit|
|California Solar Policy Information|
|Renewable Portfolio Standard (RPS)|
|RPS Solar Carve-Out|
Your Solar Strategy in California
Figuring out the best way to go solar in California can be a little daunting. From loans and leases to power-purchase agreements, there are a lot of options out there. To help you pick the one that might be best, we've created the handy decision tool below.
We'll ask you a few simple questions about you and your home. Once you're done, we'll recommend a good option. Further down this page, we provide cost estimates and example return-on-investment calculations for all the various options:
Your 3 Options for Going Solar in California
The chart above shows the 25-year returns for an investment in solar for an average California home, whether you choose to purchase a system with cash or pay over time with a loan or lease. How much you can save is greatly dependent on how much energy you need, which determines how big of a solar system (i.e., how many panels) you need.
How much solar does your home need?
Sizing a solar panel system to your home's electric usage can be done by taking look at your energy bills over a year.
Most utility companies provide information about your last few months of usage on your bill, but you can probably get more on their website. A few lucky customers get a year and a half like this:
We'll spare you the trouble of averaging that column, and tell you that this house uses about 2,200 kWh per month. That's quite a bit higher than the national average, which means the homeowner could really be helped by solar power!
Typically, your neighbors in California use about 600 kWh a month on average. So, take 600 kWh and divide by the amount of kWh one solar panel produces over the course of a month (30 kWh), and you get a 20 panel installation. 20 panels x 250 watts per panel equals a 5,000 watt system (5-kW).
Again though, these are just rough estimates. It's best to connect with an expert we trust near you who can appropriately size a system for your California home and help you get it done right and as affordably as possible.
Referring back to the colorful chart above, the purchase option offers the best returns over time, but it also requires a big up-front investment ($9,800 in the first year after incentives and energy bill savings). If you take a home equity loan or line of credit (HELOC), your savings over the first 15 years will be smaller, but you won't have to invest any of your own cash. You'll still come out tens of thousands ahead.
The option with the smallest savings is for a solar Power Purchase Agreement (PPA). Your installer owns the panels on your roof, and you accumulate electricity bill savings over time. PPAs are an excellent option if you don't have any equity or cash to put down.
No matter which option you choose your long-term solar savings far outweigh the costs of investing in the system.
In the following sections, we'll explain three different ways you can pay for solar in California:
- Option 1: Paying cash for solar
- Option 2: Using a loan to pay for solar
- Option 3: Buying the electricity, not the panels with a Power Purchase Agreement (PPA)
Option 1: Paying cash for solar
Paying cash for solar is best if you have the money and aren't able to take on any new credit obligations. Having the cash to plunk down on a solar system can earn you great returns without having to mess with the ongoing payments of a loan or PPA.
You’ll get a federal tax credit of 30% of the costs of your system, unless you don’t owe that much in federal taxes. If that’s the case, look into a PPA. Your solar panels will make you energy for the next few decades, and we estimate your investment will pay for itself in as little as 9 years, leaving you nearly two decades of pure profit and free energy.
If this sounds interesting to you, here's how the numbers work:
Here’s how the numbers pencil out if you pay cash for a 5-kW solar system in California:
- Up-front cost: You spend $15,500 up front on a solar system.
- Tax credit:You get 30% of that back as a tax credit the year after you pay for the installation, which is $4,650 off, leaving a net 1st-year cost of $10,850.
- Annual energy bill savings: Your panels produce enough electricity to save you about $1,050 in the first year, for a final net cost of $9,800.
- Payback timeline: The energy savings you accrue will pay back the initial cost of the system in year 9, and every kWh after that goes right to your bottom line
- Total savings: The panels will produce energy for at least 25 years, with a total profit after payback of about $32,500. That’s not chump change, is it?
- Environmental benefits: On top of all that green in your pocket, you've also saved some green for nature. The CO2 saved by your panels is equal to planting at least 123 beautiful trees every year. That's equal to planting a 12-acre forest over the minimum 25-year life of your panels.
Keep in mind, the numbers above are based on an average home in California. If you're ready for a custom quote for a solar panel system, our network of experts are on call to assist you. Simply sign up for personalized assistance on our special solar deals page.
Option 2: Using a loan to pay for solar
Solar loans work best if you have good credit and enough income to claim the full federal solar tax credit of 30% of costs. There's no need to tie up cash in an asset when you expect to make money from that asset.
In California, your loan should leave you cash flow positive—the cost of paying your loan will not exceed the savings you see on your electric bill from solar, and you’ll still see a handsome profit over the 25-year life of your system.
Those savings after the loan payment might be slim, but not for long; each year, the electric company raises their rates, but your loan payments stay the same. This means you'll eke out a little more savings every year. By year 15, you’ll have paid off the loan and you can enjoy a decade or more of free electricity!
The best way to pay for solar in California is with your home equity.
A Home Equity Line of Credit (HELOC) allows you to get the best interest rates and work with your own bank. Going solar also adds value to your home—value that is property tax exempt in California.
Shoot for an interest rate around 4.5% and you’ll see big savings over the long term. Paying with a HELOC also gives you the option of using the tax credit for something other than paying down your solar loan, if you need that option.
Here’s an estimate for using home equity to pay for your solar system:
Here’s how the numbers pencil out if you purchase your solar panels with a HELOC in California:
- Loan principal: With a HELOC, you'll take out the full amount for the system, which in this example is $15,500. We’ll assume a Home Equity Line of Credit at 4.5% interest amortized over 15 years.
- Tax credit: We recommend you pay the HELOC down with the full amount of your federal tax credit (in this case, $4,650), and re-amortize to lower your payments. Without re-amortizing, your payments will be slightly higher than your initial energy bill savings, but either way you're coming out ahead with the big tax credit.
- Monthly savings: That leaves $10,850 as a principal balance for your loan, which results in payments of $83 per month. Your electric bill savings will be about $87.50 per month, leaving you with savings of just over $50 ($4.50 per month on average) in the first year.
- Bill savings over time: That might not sound like a great deal to start with, but as the utility raises rates, your loan payment stays the same. At the end of the 15-year loan term, you’ll have saved about $6,000, and for the next 10+ years, you’ll save a ton on electricity. The final savings with a loan is over $28,000, which is pretty awesome for a $0-down investment.
- Environmental benefits: The icing on the cake is that you've also saved dozens of beautiful trees.
There are two other kinds of loans you might be offered, each with benefits and drawbacks:
Solar Loans - Your solar installer will likely offer financing for your system. If you go with a big company like Sunrun, you'll be offered a loan direct from them (Sunrun calls theirs the BrightAdvantage solar loan). If you choose a small installer, they'll probably work with a third-party loan provider like Mosaic or EnerBank.
These loans are tailor-made for solar buyers. They keep your payments low by requiring early repayment of the amount of your tax credit.
Essentially, you’re set up with 2 seperate loans; one with 0% interest that covers 15-30% of the cost of your system, with payment in full due by the end of the first year of ownership, and a second loan for the remainder of the costs, with interest rates based on your credit spread over the 10 to 15 years following installation.
PACE Loans - Property Assessed Clean Energy (PACE) financing is a newer way to fund solar energy systems, usually backed by municipal bonds and paid back through your property tax bill.
PACE loans are great for people with equity but imperfect credit, but the interest rates are usually a little higher than other loans. The main benefit of a PACE loan is the interest paid is most often tax-deductible.
Keep in mind, the numbers above are based on an average home in California. If you're ready for a custom quote for a solar loan, our network of experts are on call to assist you. Simply sign up for personalized assistance on our special solar deals page.
Option 3: Buying the electricity, not the panels with a Power Purchase Agreement (PPA)
In a Power Purchase Agreement, your solar company installs panels on your home, but you don't own them. You agree to buy the electricity from the panels at a set rate that's lower than your existing electric rate.
PPAs can be a smart choice if you have decent credit, low income, and/or are newly retired. And even though the savings are smaller than if you purchased a solar system, you can still avoid thousands in payments to the utility company. Though, if you can't commit to a 20 or 25-year contract, it can be a hassle to transfer the PPA when you sell your home.
Here’s an example of how much money a PPA could save you over the next 25 years:
Here’s how the numbers pencil out if you sign up for a solar PPA in California:
- The agreement: You sign a contract to purchase solar electricity at a set rate. These rates vary, but we’ll use $.11/kWh as an example.
- How it works: The solar electricity replaces most of your utility bill, but you now get 2 bills each month; 1 from the utility company for a small amount, and 1 from the solar company. In our example, your previous utility bill would have been around $125 per month. The new bill would be for about $35 per month, and the new solar bill would be for about $70. In total, that represents an average savings of $20 per month, or $240 per year.
- Lifetime savings: That might not seem like a lot, but it adds up. And the savings get larger over time, because the PPA cost increases by only 2.5% per year, whereas electricity from the utility has gone up by an average of 3.5% per year for the past few decades. Over a 20-year PPA contract, you’d save about $15,500. That’s with no money down and no messing with tax credits!
- Environmental savings: The CO2 savings from those panels is like planting 123 trees per year, every year!
Keep in mind, the numbers above are based on an average home in California. If you're ready for a custom quote for a solar PPA, our network of experts are on call to assist you. Simply sign up for personalized assistance on our special solar deals page.
Is solar right for your California home?
If you answer “yes” to each of the following questions, you’re probably a good candidate for solar.
- Do you own your home?
- Does your roof get direct sun for most of the day?
- Does your electricity bill bother you (specifically how much you have to pay)?
The ideal home for solar has a south- or west-facing roof that gets little to no shade throughout the day. The roof can be covered with anything from asphalt shingles to clay or slate tiles, but the easiest roofs to work with are asphalt and standing-seam metal roofs.
Even if your home does not completely meet these conditions, you may still see huge savings from going solar. Your installer will take everything into account when providing you with a savings estimate.
We get more in-depth with roof shape, covering, and orientation in two useful articles:
The step-by-step process for going solar in California
The most important thing to know about the entire process of going solar is that your solar installer is good at this stuff.
They'll make sure all the T's are crossed and the I's are dotted during the whole process:
- Step 1: Getting and comparing quotes
- Step 2: Financing your system
- Step 3: Sign a contract with an installer, and what comes after
- Step 4: Installation, Inspection & Interconnection
- Step 5: Operation, Maintenance and Claiming the Tax Credit
Step 1: Getting and Comparing Quotes
There are now many slick solar estimate tools online. Some have you draw lines on your roof from satellite imagery to place your panels and explain your savings. Others pit solar companies against each other in an automated battle for your dollars. Others still track the sun over the course of the year to show you your electric production with the panels you just struggled to draw on your roof.
In our view, they're all a waste of time. If you're serious about installing panels, the best way to get an accurate view of your costs and savings is to get actual quotes instead of messing around with these online tools.
After all, you're not a solar PV designer, it's better to let an expert who knows what they're doing use their own fancy tools for you (believe us—they have fancy tools).
Also, nothing beats a human connection from a trusted source. We've been forging relationships with strong partners and installers since 2007. They know what they're doing, and they're good people.
When you complete our form, we'll connect you with them. You’ll quickly get an accurate reflection of how much electricity your roof can make, how much your system will cost, and how long it will take before you see a profit. In California, with a loan or PPA, you'll be in the green immediately.
What you should look for in a solar installer
If you seek solar quotes directly from providers without our help, be sure to judge them by the following criteria. All partners in our network are:
- Trained and Skilled - The standard for solar installers is certification by the North American Board of Certified Energy Practitioners (NABCEP for short). That means they’ve undergone training and passed tests that ensure they know what they’re doing.
- Experienced - How many solar systems has the company installed? A minimum of 10 is a good number to shoot for, unless you know they company well. Of course, choosing Tesla or Sunrun means you’re with a company that has installed thousands of systems, but their process can seem less personal, and their prices are often higher than smaller companies.
- Well-regarded - Look at reviews of solar providers on Yelp and Google and other review sites. Or simply ask the salesperson to speak with one of the company’s former clients. Solar owners generally love talking about their systems, and you can benefit from their experience.
- Licensed, bonded, and insured - Make sure the installation crew includes a licensed electrician, because if not, that can be a surprise charge to get the system hooked up.And of course, the company you’re going with has to be bonded and insured in case they do any damage to your home.
The solar quote process
Your first contact with one of our solar providers will be over the phone. They’ll take a look at a satellite photo of your roof and verify some simple details about you and your home. Many will be able to provide you a complete estimate without coming to your house. If you prefer, you can review your estimate in person.
Information included in solar quotes
Your quote will include information about how many panels will be used, how much electricity they can produce, your expected savings over time, and more.
- System size - System size isn't just about the square footage the panels will occupy on your roof. In the solar industry, size refers to the number of watts your system can produce in full sun. The average solar panel puts out 250 watts at a time, so your installer would call a system of 20 panels a "5-kW system."
- Energy production - Your solar panels' energy production is measured in kilowatt-hours (kWh), just like your electricity usage is measured by your utility company. The quote will include an estimate of the average kWh your system will produce per year, and might even show you how the seasons affect expected production by month.
- Cost and incentives - Solar system prices are quoted as "total cost" and "dollars per watt." For example, a 5-kW system that costs $15,500 has a $3.10 cost per watt. These are the first figures to compare what you’re being offered. The installer should also show you the available incentives that being the net cost of the installation down. Everyone is eligible for the federal solar tax credit of 30% of the system's cost, but there may be local incentives available, as well.
Note: if you're considering a PPA, you won't be eligible for incentives, and the cost section will include your expected costs per kWh.
- Equipment - Not all solar panels are created equal, but nearly all the panels used by reputable installers should be able to reliably make electricity for the next 25 years. The options are numerous, and your installer should be able to provide you quotes for a few different kinds. For example, if having panels made in the USA is important to you, your installer should be able to offer you a quote for a system using panels from the USA and panels made elsewhere.
- Warranties - A solar system has multiple warranties that cover the panels, the inverter, and the installer’s work on your roof. What can change between quotes is the length of the warranties and what they cover. Read our full post on solar warranties and what they cover.
Deciding which solar quote is the best
Now for the easy part: choosing which solar company has the best offer. If one installer offers a lower cost per watt using great equipment, they might be the best choice. Just keep in mind that important considerations other than price set solar companies apart.
Larger installers are all about full service and efficiency, making the process of going solar fast and streamlined. They all offer in-house financing options and multiple ways to pay, and they might also throw in bonuses like free monitoring equipment and long-term warranties.
Smaller installers don’t have the overhead of national solar companies, so they can compete more on price. You might even develop a meaningful relationship with a member of your community who has been doing this for a while, and if something goes wrong with your system, it might feel better to pick up the phone to call them rather than an 800 number tied to a high-volume call center. Just keep an eye on their financing offerings. Third-party lenders for solar financing sometimes include finance charges or higher interest that can mean you save less in the long run.
For more of our guidance on choosing an installer, check out these useful articles:
- #1: Why you should get multiple solar quotes and check the math
- #2: 9 crucial things to look for in a solar installer
- #3: How to negotiate with a solar installer.
Step 2: Financing your system
If you plan to pay up front, this step is easy. Just get your checkbook out and make it happen, high-roller! But if you’re interested in a loan or PPA, it’s time to explore options.
Many installers will offer you financing at this point. Compare their offer to the other options you have. If they offer third-party financing, it might be time to explore a HELOC with your bank before you sign their financing arrangement.
We discussed the options in the section on loans above, but here’s a quick refresher:
- Home Equity - Probably the best way to pay for solar, because you control it, the rates are lower, and you can repay it in a more flexible way.
- Solar loans - Most installers will offer some kind of The big guys like Sunrun, Vivint and Tesla/Solarcity have their own loans they can offer you, but most mid-sized installers work with a 3rd-party solar loan provider like Mosaic. These loans are usually structured with the solar tax credit as a balloon payment after 1 year, and the balance of the system cost as a long-term loan at 5%-7% interest.
- PACE loans - Property-Assessed Clean Energy financing is good for people who don’t have amazing credit or tons of equity, but who plan to live in their home for years to come and don’t mind slightly higher interest rates. The loan is repaid through your property tax bill, the interest is often tax-deductible, and repayment can be spread across as many as 25 years.
Don't forget about PPAs
If you don’t mind giving up a little control and letting your solar company own the panels, choose a PPA instead. These are only available through an installer, since they’ll be the ones who own the system.
Again, a PPA is best if you don’t have enough income to take advantage of the 30% federal solar tax credit, but it can work for anybody. It’s generally simpler than owning your own system. You just sign on the dotted line and start getting lower cost electricity from your solar company.
Step 3: Signing a contract, and what happens after
So, you’ve settled on a solar installer, and lined up the funding to pay for your shiny new panels! After you sign on the dotted line, it’s time for the pros to begin their work!
First up, you’ll be seeing a few folks out for site inspections. There will be a master electrician out to look at your main circuit panel and wiring, a solar contractor to do a detailed analysis of your roof and determine the best placement for the panels, and a roofing contractor to examine the structural integrity of your roof.
Design and permitting
Following the inspections, the system designer will get to work on a digital design for your system. Your solar company will finalize the design and components, and give you a final price for approval.
Once you’ve authorized the final design, your solar installer will finalize the documents and submit them to your locality for permitting. Your installer should keep you up to date with the process, and in California, it’s pretty straightforward and shouldn’t take more than a couple weeks.
During this time, you’ll also sign a net metering and interconnection agreement with your utility company. It’s a contract that allows you to sell your excess solar electricity to them and get a new meter to keep track of your system's performance. There will be a small fee of between $75 and $150, depending on your utility.
Step 4: Installation, Inspection & Interconnection
California is a mature solar market and most installers have their procedures down pat. Installation, which used to take several days, now usually takes between 4 and 8 hours. Unless your roof is complicated or your electrical systems need updating, your crew should arrive, perform their duties, and be done within one day.
Your installer will have already completed their site surveys and the workers on the truck will know exactly what they're installing and where. The crew will arrive at your home, set up their gear and get to work on your roof.
The first thing they'll do is mark off all the places the solar panel mounts will be placed, then attach those mounts to your roof. If you'd like to know more about the big metal bolts that will be screwed into your rafters, check out an article on how solar panels are attached to your roof.
The crew will then install the racks and panels, making connections that either wire the panels together in strings, or bring the wires from the micro-inverters together. If the crew includes a master electrician, that person will make the final connections between the panel, inverter, and your main AC panel (you may have to wait a day or two for the master electrician to finish the wiring).
What the heck are micro-inverters?
Traditionally, solar panels are wired in a series and connected to a single inverter box, which converts the electricity from DC to AC so it can be used in your home. Those large inverters work great for most people, but tend to make the system overall a tiny bit less efficient. Also, if a shadow or cloud passes over and blocks sunlight to some of your panels, the whole system suffers.
Micro-inverters, on the other hand, are attached to the back of every panel, which ensures that the maximum energy output of each panel reaches your home wiring. They cost a little more, but for a house with a partially-shaded roof, they can pay for themselves quickly.
Here's an infographic showing how the two types of inverters differ:
Inspection and Interconnection
After your system is installed, it needs to be connected to the grid, and for that, you’ll need to have it inspected. Your installer will line all this up for you, too, and it may take between a couple days and a couple weeks to get the final inspections scheduled and completed.
Your city may require an inspection from the fire department, but the most important inspection will come from the utility company, who will send out someone to examine your system’s components and wiring and install the new electric meter that will record your solar kWhs.
At this point, you might even get a chance to turn the system on yourself!
Step 5: Operation, Maintenance, and claiming your tax credit
So you’ve got a shiny new solar system installed and it’s working. Now what? To be honest, not much. Solar panels are the platonic ideal of a Ron Popeil creation: set it and forget it. Still, you might find yourself compulsively checking your monitoring software to ensure those panels are working as promised.
After the deep breath of fresh air that comes with seeing your new electric bills, you'll relax into a state of solar bliss. During other moments, you'll smile as you think of all the acreage of forest you basically just planted using only the few hundred square feet of your roof.
There are a few important things to know after your panels are installed:
- How to maintain your solar panels
- How to tell if your panels are working
- What to do if they break down
- How to claim the federal tax credit for solar
How to maintain your solar panels
Maintaining solar panels is a breeze. Solar panels are designed to handle rain, wind, snow, hail, and whatever nature throws at them for 25 years or more. All the maintenance a solar panel system needs is a yearly rinse and squeegee to take off extra dust and grime; maybe 2 or three times yearly if you live in a very dusty place. You can get by with a hose, if you need to.
If you own the system, either with a loan or having paid cash, you can expect to do (or contract out) the work yourself. If you have a solar PPA contract, this annual or semi-annual cleaning may be included as part of your agreement, or you may have the responsibility to do any cleaning yourself. Be sure to look for this information as part of a PPA offer.
How to tell if your solar components are working
Other than cleaning, you may someday experience the failure of one or more components. Right off the bat, you should be able to see whether your panels are delivering energy on the panel of your inverter or net meter.
Read the user manual of your inverter to find out how to access the proper information, but most inverters will have a real-time production number on an LCD readout right on the front.
If you have a system with a central inverter, you will likely need to replace it after 10-15 years. If, instead, you have micro-inverters attached to each panel, they should last for the life of your system, and if not, they’re usually covered by 25-year warranties.
Your installer may also have included monitoring software as part of your installation, either on a screen attached to your system or on the web. The monitoring software will tell you if the system is functioning properly, and, if you have micro-inverters on each of your panels, can even tell you if any panels are not working as they should.
If you discover that one or more of your panels isn’t working, it’ll be time to file a warranty claim.
What to do if your panels stop working
If you’ve done a good job by choosing one of our installer partners, you’ve got warranties that cover the installation (e.g., watertightness of roof penetrations and structural integrity of your roof), the panels (manufacturing defects) and the energy (production guarantee).
Your first step is to figure out who to contact. If you have a PPA contract, that step is simple: call your installer or contact them via their customer portal. That might also be the case if you sign up for a solar loan from a big installer. Oftentimes, the loan comes with a similar kind of protection.
If, however, you went with a different installer, perhaps sourced through a different website, you’re probably stuck looking through the paperwork you got with the system to find the manufacturers of your panels, inverter, or other components.
How to claim the federal tax credit for solar
Claiming the Federal Solar Investment Tax Credit (ITC, for short) is easy, just have your personal assistant fax all the necessary paperwork to your accountant in the Caymans, and wait for your huge refund.
Oh wait, you don't have millions in an offshore account? Then we've got the necessary info for you. The ITC is claimed by filling out a special schedule, Form 5695, and entering the credit amount from that into your 1040 form.
For your edification and convenience, we've prepared a step-by-step guide to claiming the solar tax credit.
California Solar Policy Information
Ever wonder why solar seems to be everywhere in some states, but not in others? We did too.
State legislatures and public utilities commissions can enact rules to make solar power accessible for everyone. Favorable rules explain why some of the cloudiest states—New York, New Jersey, and Connecticut, are doing so well with solar, and yet some of those with the most natural solar resources—like Alabama, Mississippi, and Florida—are doing so poorly.
Below is important information about the public policy, rules, and economic reasons that affect your ability to go solar here in California.
100% by 2045
A Renewables Portfolio Standard (“RPS”) requires utilities in the state to eventually source at least a certain percentage of their electricity from clean, renewable sources like solar panels.
California has one heck of a Renewables Portfolio Standard (“RPS”); 100% of electricity production must come from "carbon-free" sources of energy by 2045. If not, the utility companies get slapped with mighty high fees. Only Hawaii has a better goal, seeking 100% of its electricity from only solar and wind by 2045. But Hawaii's population is just 1.5 million people, and California's is nearly 27 times that at 40 million.
What we're saying is, getting electricity for 40 million people from carbon-free sources is a BIG deal.
California’s RPS is critical to strong renewable energy policy. Utility companies aren't really all that gung-ho about you producing your own power. After all, it costs them money when you use less of their electricity. They also don’t naturally want to give you big payments for energy you're feeding back into the grid. The main reason the utilities are aiding your transition to lower electric bills and offering you incentives to put solar on your roof is because the state forces them to. If the utilities don't hit their RPS numbers, they have to pay large fees back to the state. The penalty in California for not meeting the RPS standards is 5 cents per kWh, up to $25 million per year, per utility.
Recently, the state has seen a victory for solar in the fight to keep net metering in place for new solar owners. Expect it to stay that way, at least for a couple more years, while the state continues to refine its approach as solar takes a larger and larger chunk of total electricity generation.
What's an RPS? Your state legislature paves the way for strong solar energy incentives to flourish by setting standards for renewable energy generation within their territories. Those standards are called the state’s renewable portfolio standard (RPS). If utility companies do not meet these standards, they must pay alternative compliance fees directly to the state. Many utilities then determine the best ways to source their energy from renewable sources that are less expensive than this fee.
An RPS is a mandate that says "Hey utilities! Y'all now have to make a certain percentage of your electricity from renewable sources. If not, you'll have to pay us huge fines." The consequences are good, because utilities usually try to meet these RPS standards by creating solar power incentives for you, the homeowner. Read more about Renewable Portfolio Standards.
RPS solar carve out
California’s strong RPS and geographic location have been a boon to residential solar. But if the RPS contained specific carve-outs for clean and efficient technologies like solar panels, or mandates for the environmentally necessary increases in distributed generation, you’d see even stronger incentives for residential solar power.
What's a solar set aside? A solar set aside guarantees a specific portion of the overall renewable energy mix generated comes from the sun. For those states with progressive standards, high alternative compliance payments, and clear solar carve outs, the faster those areas become ripe for solar.
Some states have higher alternative compliance fees than others, and some states have more progressive alternative energy standards and deadlines than others do.
For instance, New Jersey has an overall RPS of 22.5% by the year 2021. That requires local utilities to source 22.5% of their energy mix from renewable sources by the year 2021. Pretty good. However, New Jersey also has a specific solar set aside of 4.1% by 2028. That’s the type of firm commitment which really gets the industry rolling forward. No wonder why New Jersey is one of the hottest solar markets right now!
California Electricity Prices
Californians currently pay an average of 19 cents/kWh for electricity – one of the ten highest rates in the nation. And place like San Francisco and San Diego pay $.25 or $.30 per kWh, or more. That's INSANE!
We know you hate your electric bill. Really, we do. So let's do something about it. The reason your high electricity cost gets an "A" here is because it means you can save more money with solar! And as you’ve seen in the past few years, energy costs will continue to rise. In the nation overall, prices go up about 3.5% per year, but in some places in California, the utility companies have plans to increase retail prices by as much as 8% per year.
But you're not worried about that, because you're switching to solar, right? You're out there getting mulitple quotes for that home solar panel installation you're planning. You're ready to join the ranks of super smart Californians who know solar can save them thousands of dollars and add value to their homes. Good for you!
Why are electricity prices so important? Because that is what solar power is directly competing against. The cost to produce power with solar is relatively constant (of course how much sun hits your area has an effect), so if you are paying $0.40 per watt for power, then you make FOUR TIMES AS MUCH as the guy or girl paying $0.10 per watt electricity.
The caveat here is that if the $0.10 per watt person has a HUGE rebate, they may be better off than the $0.40 per watt person. Because of that, states without any renewable standards tend to be heavily reliant on cheap coal for electricity, and also have very low electricity prices. When electricity prices are artificially low, that hinders the ability of solar energy to achieve meaningful payback in the state.
California Net Metering
Net metering (aka “Net Energy Metering," or NEM for short) is a term that means what we described above: every kWh you send to the grid reduces your electric bill by 1 kWh. California had a great NEM policy in the early 2000s, and solar boomed all around the state.
Then the percentage of energy coming from solar started to become significant, and the state Public Utilities Commission, under pressure from utility companies, decided it was time for a new NEM standard. They called in NEM 2.0, and despite what we just wrote about pressure from utility companies, it’s actually still pretty great for solar owners.
Here’s how NEM 2.0 works:
- A homeowner buys a solar panel system and installs it on their roof.
- The utility company sets them up with an “interconnection agreement,” for which they charge a small fee ($75-$150, depending on where you live). That allows the homeowner to get their system hooked up to the grid to start earning them credit
- The homeowner also signs up for Time-of-Use billing, which means they pay more for electricity when lots of people are using it (peak time) and less when people aren’t using as much (off-peak).
- The homeowner also gets bigger credit for solar energy sent to the grid at peak times, and lower credit for energy sent at off-peak times.
- The resulting kWh are “netted” monthly, equaling usage minus production. The homeowner also has to pay a minimum monthly fee (the same as non-solar owners), and, here’s the kicker, a tiny amount for each solar kWh sent to the grid. That tiny amount is called a “non-bypassable charge,” and it’s about 2 cents per kWh.
- At the end of each month, the customer pays the bill for the monthly charge, and non-bypassable charges.
- At the end of the year, all the kWh that were sent to the grid are subtracted from all the kWh that the customer used, and a final bill called the “true-up” is due. If your solar system is sized to meet your usage and you hit that number, your true-up bill could be $0. If you used more than you sent to the grid, you have to pay for the balance. If your panels made more than you used all year, you get about 3-4 cents per kWh for the extra.
Whew, that sounds complicated! Well, you don’t know the half of it. On top of what we just told you, some utility companies offer different NEM-like billing arrangements that still meet the state’s requirements.
If you’re one of the millions of homeowners served by SDG&E, SCE or PG&E, your NEM arrangement will probably be much like we described above. If, on the other hand, you’re serviced by a municipal utility like SMUD or LADWP, you might have a very different experience.
Fortunately, your friendly local solar installer has dealt with NEM 2.0 for a while now, and they are the experts in helping you design a system that will maximize your savings. Connect with local solar experts near you to find out more about how you can save.
What is net metering? Net metering is the billing arrangement where you can sell excess electricity back to your utility for equal the amount you are charged to consume it. The more customer friendly net metering policies, the higher the grade.
The grade here specifically reflects individual solar system capacity, caps on program capacity limits, restrictions on “rollover” of kWh from one month to the next (yep just like cell phone minutes), metering issues (like charges for new meters), Renewable Energy Credit (REC) ownership, eligible customers and technology (the more renewables the better), being able to aggregate meters across the property for net metering, and safe harbor provisions to protect customers from solar tariff changes.
California Interconnection Rules
In California, small renewables are exempt from paying the high costs associated with the interconnection studies, distribution system modifications or application review fees that we've seen be a problem in other states.
Only two areas remain utility companies aren't adequately restrained from overcharging you for interconnection: requiring a redundant external disconnect switch; and requiring you to carry separate liability insurance. While such safeguards make sense for very large energy systems, both of them are just a waste of money for small residential setups like yours. Whether or not you'll be required to pay for either depends on your utility company and its policies. One of our local partners can tell you for sure when you get one of your free quotes.
Interconnection rules are a little technical, but they basically allow you to “plug in” to the electric grid with solar panels on your roof. The more complex, out of date, or nonsensical the state rules are for plugging into the grid, the lower the grade.
Specifically, the grade reflects what technologies are eligible, individual system capacity, removing interconnection process complexity for smaller systems, interconnection timelines and charges, engineering charges, prohibiting the requirement of unnecessary external disconnects, certification, spot interconnection vs. wide area interconnection, technical screens, friendliness of legalese, insurance requirements, dispute resolution, and rule coverage.
Solar Incentives in California
California Solar Power Rebates
Varies by utility
California's solar power rebate program used to be extensive. The state enacted the California Solar Initiative (“CSI”) to encourage the development of solar power. The Initiative’s goal was to help create 3,000MW of new solar power by 2017, and they succeeded.
Unfortunately for most residents of the state, the big utilities have long since closed their rebate programs. Some municipal utilities still offer rebates to new customers who install solar. Check the table below to see if there is still funding in your area:
2018 solar rebates for California municipal utilities
|Utility Company||Rebate Amount||Notes|
|Bear Valley Electrical||$1.09/watt||Incentives end in 2016|
|Burbank Water and Power||$0.64/watt||Next lottery drawing in July 2016|
|City of Healdsburg Utilities||$620/kW||$2,480|
|City of Lompoc Utilities||$1,500/kW||50% of costs|
|City of Palo Alto Utilities||Fully reserved (waitlist available)||n/a|
|Corona Department of Power and Water||$980/kW||$2,940|
|Lassen Municipal Utility District||$2,800/kW||Lesser of $4,000 or 50% of costs|
|Lodi Electric Utility||Fully subscribed for 2014, TBD for 2015||n/a|
|Merced Irrigation District||$1,500/kW||$4,500|
|Modesto Irrigation District||2014 program budget expended, 2015 TBD||n/a|
|Pacific Power||$470/kW||250 kW|
|Pasadena Water and Power||$850/kW||30 kW|
|Roseville Electric||$320/kW||10 kW|
|San Francisco||$500 - $2,800||Varies by system size, additional incentives available.|
|Silicon Valley Power||$1,750/kW||50% of costs up to 10 kW|
|Truckee-Donner PUD||2014: $2,740/kW 2015:2,550/kW||First 3 kW. Currently $8,220|
|Turlock Irrigation District||$730/kW||50% of costs|
We realize these charts and tables might be a little confusing. That's why we strongly recommend getting one or more custom quotes including specific rebate amounts tailored to you, your budget and your utility. We’ll connect you with a local installer that can walk you through the process and even apply for rebates for you as part of installation. In many areas, you can go solar for $0 down!
How do solar rebates work? Similar to getting a rebate card from your local big box store for a dishwasher purchase, state legislatures also provide rebates for solar panel purchases to spur on investment and create new jobs. If you purchase the solar panel system yourself, you qualify for this free cash, which many times is a lump payment back to you. Some solar installers like to take this amount directly off the total installed price, and they'll handle the paperwork for you to make things a lot less complex.
The availability of state and utility rebates were sourced from the Database of State Incentives for Renewables and Energy Efficiency. The better the rebates, the higher the grade.
California Solar Power Tax Credits
Solar power in California used to qualify for a tax credit. Sadly, the solar tax credit went the way of the Dodo Bird in 2005. To be fair, the tax credits were probably allowed to expire because of the implementation of the huge CSI program, and all those solar rebates we just talked about. But we’d gladly take a tax credit and a rebate (nudge, nudge).
About state solar tax credits: State tax credits are not technically free money. However, they are 'credits' and not 'deductions' which means that if you have the tax appetite to take advantage of them, then they can be a 1-to-1 dollar amount off your taxes instead of a fraction of the cost of the system. So that means they can be an important factor to consider. In certain circumstances, state tax credits can provide a very powerful incentive for people to go solar.
(Keep in mind, we are not tax professionals and give no tax advice so please consult a professional before acting on anything we say related to taxes)
The availability of personal tax credits for solar energy were sourced from the Database of State Incentives for Renewables and Energy Efficiency. The higher the tax credit amount, the higher the grade.
Solar Power Performance Payments
California has no statewide Feed-in Tariff (“FIT”) program, but some municipalities do offer a contract for buying the energy you produce. A feed-in tariff is the rate the utility company will pay you for every hour of electricity you produce, if you opt into it. The problem with feed-in tariffs is that they remain constant over the term of the contract, so it is often beneficial to consumers to instead take advantage of net metering, which tracks the amount of electricity your system generates, and pays you for any surplus over your usage at the end of the year. Given those limitations, the FIT program probably only makes sense if you’re planning a big ol’ solar farm.
For a single-home solar power system in California, you are going to be better off planning a system which zeroes out your electric bill, and taking the net metering credits explained below for any small amounts of surplus you generate.
If these numbers sound like we’re speaking a foreign language, don’t worry. Go back to the portion of the page we calculate an example for you with an average sized solar system and show you how it works. Of course, if you’re still confused after digesting that, connect with us directly and we’ll customize a return on investment analysis for you in very easy to understand terms. Depending on your location in California, you'll even be able to get solar panels up on your roof at no out of pocket cost and reap the savings they produce from your electric bill immediately!
Explanation of performance payments: Performance payments represent a big chunk of the financial rationale for going solar, and in many instances they make your decision a wise one. For certain states, if you’ve got solar panels on your roof, not only will you be cutting your electric bill down to size, but you'll be getting paid additional cash from your utility company. Pretty awesome, huh? Not only are you generating electricity for yourself, freezing your own popsicles with sun, and feeling like you’re doing something smart for your children or any of the other 4 reasons people go solar, but you are getting PAID!
Utility companies are paying people with solar panels on their roofs because their states say they have to, otherwise they will pay a fee. Therefore, the payment amount to homeowners is typically a little bit less than the amount they would be billed for by the state. For states with these alternative compliance fees, Solar Renewable Energy Credit (SREC) exchanges have popped up. In the above chart, we outlined an estimate of yearly payments a homeowner might expect from the utility company for the SREC credits from their solar energy system.
Expected SREC payments were calculated by using the latest trade values in the SRECtrade database. The availability of feed-in tariffs were sourced from the Database of State Incentives for Renewables and Energy Efficiency. The higher the expected monthly payments, the higher the grade.
If you don’t know what an SREC is, or how they work, check out this great SREC video
Property Tax Exemption
If California isn’t giving you a tax credit anymore, it’s at least giving you some tax exemptions, right? Well... yes!
Until the end of 2024, new solar installations will be subject to no additional property taxes, based on their assesed value. That's a pretty good bargain, since the best data we have shows a home value increase of about 70% of costs.
For a typical 5-kW system in California, that's nearly $11,000 in home value that the assessors can't touch!
About solar property tax exemptions: Property tax exemption status is a pretty big factor when putting together your investment considerations. Many argue that solar power adds approximately 20 times your annual electricity bill savings (if you are owning the system and not leasing. Leasing still has a positive impact on the ability to sell your home though, in our opinion).
For many average-sized solar power systems on a house, that can mean $20,000 to your home value. (Edit April, 2014: Some companies, like Solar Mosaic, are starting to offer traditional style equity-based home loans for such a thing). An additional $20,000 in property tax basis in many states amounts to a big chunk of change owed back to the state. However, many states have complete exemptions from added taxes when you install solar on your home!
The availability of a property tax exemption for solar energy was also sourced from the Database of State Incentives for Renewables and Energy Efficiency. The stronger the tax exemption, the higher the grade.
Sales Tax Exemption
One of the simplest ways for the California state legislature to encourage small scale clean energy adoption is to declare solar panel equipment exempt from state sales taxes as many other progressive states have done. Sadly, there is no such declaration.
What's the deal with solar power sales tax exemptions? When states give you a sales tax break on solar, we notice. You should too. State sales tax exemption status for the purchase of solar energy systems were sourced from the Database of State Incentives for Renewables and Energy Efficiency. Sales tax exemptions, if present, were all 100%. A handful of states are completely exempt from sales tax regardless, and therefore received ‘A’ grades by default (OR, DE, MT, AK, and NH).
Low-Income Solar Programs in California
California is at the vanguard of states that offer programs to help low-income families go solar. If you live in California and have electricity service through one of the state's big 3 electric utilities, you could be eligible for a 100% free solar system that can provide call the power you need. Let's dive in to how that works, and who qualifies:
California's Single-Family Affordable Solar Housing Program (SASH)
The SASH program was the first of its kind in the United States, and to this day, it remains the single most valuable low-income solar program for homeowners. The program is administered by Grid Alternatives, which is an excellent non-profit organization that both helps low-income families go solar and teaches people from all walks of life how to work in the solar industry.
Through Grid Alternatives, low-income homeowners can participate in the SASH program and receive additional funding to completely cover the cost they would have paid for a solar system. Here are the details that qualify a homeowner for the SASH Program:
- Own and live in their home
- Be customers of Pacific Gas & Electric (PG&E), Southern California Edison (SCE), or San Diego Gas & Electric (SDG&E)
- Have a household income of 80% or below the median income for their area
- Live in a home defined as “affordable housing” by California Public Utilities Code 2852
That last one might be a bit of a restriction. Here's what Code 2852 says:
An individual residence sold at an affordable housing cost to a lower income household that is subject to a resale restriction or equity sharing agreement, for which the homeowner does not receive a greater share of equity than described in paragraph (2) of subdivision (c) of Section 65915 of the Government Code , with a public entity or nonprofit housing provider organized under Section 501(c)(3) of the Internal Revenue Code that has as its stated purpose in its articles of incorporation on file with the office of the Secretary of State to provide affordable housing to lower income households.
If that describes your situation, connect with GRID Alternatives to learn about your options.
California's Multi-Family Affordable Solar Housing Program (MASH)
The MASH program differs from the SASH program in that it helps landlords who offer affordable housing to install solar panels. Those panels can be set up to produce electricity that both offsets common-area electricity needs OR benefits the tenants, and there are additional amounts available for systems that offer more than 50% of their electricity to reduce tenant electricity bills.
Unfortunately, all funds for the current MASH program are subscribed, meaning there's nothing left until the next round of funding comes through. For more information, check out the MASH program page at Go Solar California.
The consensus on California solar power rebates and incentives
Not too shabby California, not too shabby at all. We’re giving you a B for your overall solar policy. A few years ago you would’ve gotten highest marks, but the incentives went away.
Still, payback timeframe and internal rate of return are admirable, even if they aren’t insane like in states that still offer big incentives. Anyone with a sunny roof can go solar and save in California!
Again, if you are confused about how these numbers work and would like some personalized assistance or a quote of your own, simply connect with our network of solar experts. They’ll help sort out all the pricing, get you access to special deals, and they’re super friendly to boot!
Don’t forget to check out our special page about solar in San Francisco!